Equipment finance compared: chattel mortgage, lease, hire purchase or loan

Equipment finance is really a family of products. They all help you get a machine, vehicle or system working in the business without paying for it all at once, but they differ in who owns the asset, how GST and depreciation are handled, and what you owe at the end. Picking the wrong one can cost more than picking the wrong lender.

What are the main equipment finance structures?

• Chattel mortgage. You buy and own the asset; the lender registers a security interest over it until it’s paid off.
• Hire purchase. The financier buys the asset and you pay it off in instalments; ownership passes to you at the end.
• Finance lease. The financier owns the asset and leases it to you; at the end you may pay a residual, return it or refinance.
• Operating lease or rental. You use the asset for a period and return it. Common for tech that dates quickly.
• Business loan. An unsecured or property-backed loan used to buy the equipment outright.

How do they compare?

	Chattel mortgage	Hire purchase	Finance lease	Business loan
Who owns it during the term	You	Financier	Financier	You
Security	The asset	The asset	The asset	Trading record or property
Balloon or residual	Optional	Optional	Common	Not usually
Funds extras like installation	Sometimes limited	Sometimes limited	Sometimes limited	Flexible
Used or private sale	Often possible	Sometimes	Sometimes	Yes
Best for	Vehicles, machinery you’ll keep	Similar to chattel mortgage	Assets you may upgrade	Mixed purchases, older gear

GST, depreciation and deductions differ across these structures. The business.gov.au guide to leasing or buying sets out the general picture, but your accountant should confirm what suits your business before you sign.

When does equipment finance beat a plain loan?

Equipment finance tends to win when:

1. The asset holds its value well, like a ute, truck or excavator.
2. It’s bought from a dealer with a clear invoice.
3. You want to keep other security free, such as property.
4. A longer term helps, matched to the asset’s working life.

A business loan can win when you’re buying a mix of items, older or specialised gear, installation and fit-out costs, or from private sellers. A property-backed loan can also fund several assets under one facility.

How long should the term be?

Keep the term within the time the equipment will earn its keep. A laptop shouldn’t be on a five-year contract; a well-maintained excavator might reasonably be. If a balloon brings the repayments down, check the asset will still be worth more than the balloon when it falls due. Our loan term page covers this.

Illustrative example. A Toowoomba earthmoving contractor needs a $180,000 excavator from a dealer and $25,000 of attachments and transport. A chattel mortgage over five years with a modest balloon covers the excavator with low monthly repayments. The attachments come from a private seller, which the equipment financier won’t fund, so he covers those with a small unsecured loan. Two facilities cost a little more to set up, but the combined repayment suits his contract income.

What should you compare between equipment finance offers?

• Total repaid, including any balloon and fees.
• Balloon size versus the asset’s likely value at the end.
• Early payout terms if you upgrade or sell early.
• Insurance requirements.
• What happens at the end of a lease: residual, return or refinance.
• Who can supply: dealer only, or private sales too.

Use the loan offer comparer to see the total cost of each quote side by side, including any balloon.

Before you buy

• Get a written quote with make, model, year and serial number or VIN.
• For used gear, search the PPSR for existing security interests.
• Ask your accountant about GST credits, depreciation and the instant asset write-off.
• Check insurance costs for the asset.

Compare equipment finance for your next purchase

If you’ve found the equipment and want to know which structure suits, a short conversation will narrow it down. Enquiring doesn’t touch your credit file; a check comes later, only if you decide to go ahead. Your details won’t be fired off to a pile of lenders. A real person looks at the asset, the seller and your cash flow, then compares a chattel mortgage, lease or loan in plain dollars.

Please give accurate details on the form about the equipment and its price. Get your options, or try the business loan comparison tool first and then send us the quote.